Monday, May 10, 2010

The biggest test of how well behavioral economics can be applied to healthcare is the new federal health reform law, which contains in its more than 1,000 pages many opportunities to nudge people toward better health choices.

"There's definitely a general fascination about this area," said Alan Garber, an internal medicine physician and professor of medicine and economics at Stanford University. "In healthcare, for years and years and years there's been an interest in changing provider and consumer behavior."

But some worry that behavioral economics could exacerbate health disparities, or inadvertently punish the elderly or people who suffer from chronic diseases.

Meanwhile, some employers are moving full-force to apply behavioral economics to benefit-package design in order to cut healthcare costs.

The most obvious example of behavioral economics in the new healthcare law—and one that drew fire from chronic-disease groups—is a change in employer wellness program incentives. Starting in 2014, employers can offer workers rewards worth up to 30% to 50% of their cost of health coverage for participating in a wellness program and meeting health benchmarks. The law also sets up a 10-state pilot program for similar wellness initiatives on the individual insurance market.

The idea is to create more incentives for workers than is allowed by law today to improve their health, and thus lower medical costs for everyone. The large incentives were pioneered by the grocery chain Safeway.

But the American Diabetes Association, the AARP and other groups have criticized the enhanced incentives, saying that they could penalize those with chronic diseases by forcing them to pay more for healthcare.

"Our position hasn't changed," said Colleen Fogarty, spokeswoman for the American Diabetes Association, in an e-mail. "We remain opposed to the language, but it is now the law and we have to work to ensure that these provisions do not have a harmful or unfair impact on people with chronic diseases."

Proponents of the provision say it is a good example of a component of behavioral economics called "choice architecture." Essentially, choice architecture is organizing choices in such a way that influences people's decisions. In theory, enhanced wellness program incentives allow employers to encourage workers to make the healthiest choices.

Choice architecture is sure to be hugely influential in how the government structures new health insurance exchanges, set to go online in 2014, Garber said. While the government won't be able to pick favorites among insurers participating in the state-run exchanges, it will be able give customers information about the plans, using transparency measures. This has already been done through the Medicare Part D prescription drug program, which lets insurers compete on the Medicare website for business.

"Behavioral incentives can be powerful, but they are unlikely to overcome a powerful financial incentive," Garber said. So, for some people, an expensive healthcare plan they have to pay for in monthly premiums could be less appealing than a once-a-year financial penalty.

The dangers of financial penalties in healthcare have been shown time and time again when examining prescription drug use. If copayments go up too high, then some people stop filling their prescriptions and wind up sicker.

On the other hand, financial incentives don't always work to change behavior, as evidenced by the disappointing results in physician pay-for-performance programs.

"We'll be seeing some interesting experiments unfolding over the next few years," Garber said. "This will, in the end, play out in the market."

Express Scripts, a St. Louis-based pharmacy benefit manager, in 2008 launched the Center for Cost-Effective Consumerism and hired experts in behavioral economics—including Garber at Stanford University—to its advisory board.

Lowe's, the home-improvement retail chain, saved $5.2 million in 2009 by getting employees who take maintenance prescription medications to switch to home pharmacy delivery. It did it using behavioral economics. Bob Ihrie, senior vice president of employee rewards and services at Lowe's Cos., describes the method as "carrot, carrot, stick, big stick."

Lowe's started by educating its 225,000 employees nationwide about home drug delivery, and the cost savings involved. After the third month, if workers hadn't switched, they are notified at the pharmacy when picking up their prescription and told that if they don't switch to home delivery, they would start paying the full price of the prescription. The next month, if they hadn't signed on for home delivery, they paid full price at the in-store pharmacy.

Another carrot followed. Last September, about 22,000 employees who were not signed on for home delivery received a postcard from Lowe's informing them that if they select home delivery, their prescription drug would be free the first month. About 10% responded to this incentive, Ihrie said.

At the end of 2009, nearly 38,000 workers had switched to home delivery, up about 160% from 14,500 in 2008. Then came the big stick. Starting in January, employees eligible for home delivery but not yet enrolled pay twice the retail price for the drug in store. "We are still waiting to see the outcome of this," Ihrie said.

The program has worked by breaking the cycle of procrastination, Ihrie said. "We give them choices upfront and then gradually move them along a path that is more mandatory," he said. Conducted in partnership with Express Scripts, the program cuts waste out of the system without affecting clinical outcomes, Ihrie said.

Several high-ranking officials in the Obama administration are strong proponents of behavioral economics. Cass Sunstein, co-author of Nudge, is now the administrator of the White House Office of Information and Regulatory Affairs. Peter Orszag, director of the White House Office of Management and Budget, has spoken about the promise of behavioral economics to control costs.

Comment: "Behavioral economics" and "choice architecture" are being used to shift health care spending from the healthy to the sick by directly or indirectly assessing financial penalties against those who are unfortunate enough to have greater health care needs. This is strictly another scheme by pro-market enthusiasts who support the flawed concept of consumer-directed health care.

As an example of the flaws, a scheme that requires patients to pay twice the usual retail price for a drug is a perverse scheme indeed. Another example is Safeway's fraudulent claims of savings from their wellness programs when their savings were really only from shifting to high-deductible health plans.

Instead of jerking patients around with perverse market tools, we need to switch to a public system that simply helps patients get the care that they need - an improved Medicare for everyone.